The European morning saw light activity as larger flows were kept to the minimum ahead of key event risks later this week. The risk backdrop was positive in Asia, but in Europe the tone was mixed, which dampened speculative flows. Early dollar selling fizzled out, which saw EUR back away from 1.3080 to the 1.3020 area. There was added EUR pressure after MNI quoted ECB sources, which are reportedly pressuring Draghi to take back the initiative with foward policy guidance. Meanwhile, GBP met selling pressure on upticks on a weak technical picture despite more positive U.K. data. AUD was capped after RBA said AUD was still too high overnight as it left rates unchanged at 2.75% as expected. USD-JPY threatened 100.00 and failed as option names capped at 99.90.

[EUR, USD]EUR-USD experienced limited upside as fund offers fueled a move back into the 1.3020 region. EUR ranges are set to remain tight into the ECB policy outcome on Thursday and Friday's NFP data. The EUR did not see much reaction from news that Porguese Finance Minister Gaspar resigned and will be replaced by Albuquerque. Meanwhile, EU officials said Greece has three days to reassure troika is can deliver on promises in order to receive the next aid tranche. Greece has struggled to make good previous pledges due to the recent collapse of privatisation bids. There was light selling noted after a MNI report suggested that ECB officials are pressuring Draghi to take back the initiative with forward guidance.

[USD, JPY]USD-JPY topped out around 99.90 as outstanding option barriers from 100.00 fueled selling pressure. Profit taking by longs saw a pullback towards the 99.65 area, though buyers are keeping bias on the upside in quiet trade. EUR-JPY selling also went through as fund names emerged on top of EUR-USD, leaving the cross just under 130.00 versus early highs of 130.65. There was further market speculation that ECB are mulling forward policy guidance, though this is not a new report. However, it has weighed on money market rates and may have contributed to some light EUR selling. Meanwhile, Japan's government pension fund posted record returns in the fiscal year 2012-2013, which ended March. It made gains in all four asset classes and was aided by Abenomics and a weaker yen.

[GBP, USD]GBP was unable to sustain gains for the second session. Cable benefited in early trade from profit taking by fund names in EUR-GBP ahead of 0.8600, which helped Cable out of 1.5200 towards 1.5240. Thereafter, the dollar strengthened as stocks in Europe struggled, while EUR-GBP found buying interest on dips into 0.8560. Cable was net unchanged around 1.5200 and did not see any further upside despite the a pick up in U.K. construction PMI, which reached its best levels since May 2012 at 51.0. GBP supply has intensified ahead of the BoE policy meeting later this week, where Carney takes charge for the first time. No change is expected but in the months ahead there is likely to be more emphasis on forward policy guidance.

[USD, CHF]USD-CHF headed higher, aided by a firmer dollar as European stocks came under pressure. USD-CHF found buyer into the 0.9450 area, with fund names tipped ahead of the 100-dma lower down. This has provided a prop on the downside since USD-CHF broke higher last week and the bias remains on a sustained move through 0.9500 and resistance at 0.9520. EUR-CHF pulled back from from 1.2365 early on as an overhang of offers and EUR-USD supply furled a move back through 1.2350. Overall, it has still held on to most of the gains made in the last after good long-term demand went through into 1.2250 and below late last week.

[USD, CAD]USD-CAD is rangebound after quiet trade on Monday amid a Canada market holiday. It found support under 1.0500 following the drop from near 1.0530 to just under 1.0490 amid the better U.S. ISM outcome, though with Canada on holiday, CAD trade was thin. USD-CAD buyers were quick to return under 1.0500 and it edged up through 1.0520 in overnight trade. More range bound trade looks likely. The underlying tone encourages buyers from 1.0490 to 1.0470, while offers are seen at 1.0530 and increase in size at 1.0550.